Nonlinear Hedonics and the Search for School Quality

We reexamine the relationship between school quality and house prices and find it to be nonlinear. Unlike most studies in the literature, we find that the price premium parents must pay to buy a house associated with a better school increases as school quality increases. This is true even after controlling for neighborhood characteristics, such as the racial composition of neighborhoods, which is also capitalized into house prices. In contrast with previous studies that use the boundary discontinuity approach, we find that the price premium from school quality remains substantially large, particularly for neighborhoods associated with high-quality schools